FHB questions: buying a property with cash, and <$100k mortgage

OK here is a reply from a mortgage broker, would love your business But in all truth here is a suggestion.

With your age and length of employment, no bank is going to look at you for any size loan in this climate, you will need to wait for things to change or you have more than two year continued employment.

If your Dad is willing to put up the money and for your to get the FHOG he will need to certify a letter signed by a solicitor or a statuary Declaration signed by a JP, to say that he has gifted the money to you and requires no repayments in return.

Then go and buy the property for cash, even if it means looking in the lower price range do so you don't want to be in debt if you can help it.

For you to get the FHOG you will have to do this yourself it is easy enough and as long as you have contract exchange before the 30th june you can claim the extra. All you will need to do is type in FHOG au in Google and it will take you to the website and follow the links to NSW forms, downloan and print off. if you need any help with this just email me and I will send them over.

As far as tax is concerned your Dad will need to talk to his accountant about the gifted money and what it means for him. but there is nothing stopping you form buying with cash, IT IS GOOD.

Once you have bought your new property and have moved in, you now have a wonderful unencumbered property you can now use, with your Dad's help as security for your new investment portfolio.
This I can most differently help you with LOL

Cheers

Alan i have to disagree with you on a few points.

Pending any probationary period that may be in place, i'd say that alexz1011 would certainly find mainstream financiers would lend the amount in question. There is certainly sufficient income to service a loan of that size (unless there are other large debts we are unaware of) and with a very low LVR, most lenders would see this as very low risk (assuming a satisfactory credit history). Many lenders like to see at least a portion of the deposit as being 'genuine savings' but in a scenario such as this i dare say the strings could be pulled a little. You also mention age, i may be missing something but i cannot see the OP listing their age, only that they are a 'newbie'. Age generally is not a factor, in fact it is an offence to discriminate on the basis of age. One thing i could suggest is perhaps the OP could be in their position for a little longer in order to consolidate the application. Even 3 months looks better than 2 on an application, if you had a property in mind perhaps you could negotiate a longer than normal finance clause in order to be in your position a little longer when you actually formally submit?

It's not a given that finance could be obtained, it depends on credit history, previous field of employment (if any) and so on, but i'd strongly disagree with the With your age and length of employment, no bank is going to look at you for any size loan in this climate, you will need to wait for things to change or you have more than two year continued employment statement.

As for being eligible for the FHOG, whether or not your father gifts you the deposit, or expects repayment, has no direct effect on eligibility as far as i know. As long as your father does not have an 'interest' in the property, you will be eligible. The OSR (or equivalent) does not concern itself with the origin of the deposit, rather it looks at whether all relevant parties are eligible.

I can't comment on taxation implications, but as far as financing the property goes, you should have no problems at all. As for the FHOG application if you pay cash for a property, it is a simple matter of having a few documents witnessed by a JP, signing a few papers and posting the application off and having the funds arrive in your bank account within a couple of weeks.

Good luck, and all i can say is i wish i was in your position when i bought my first property!

Jamie

Beaten to the punch by Richard. My apologies!

Best you listen to his advice rather than mine anyway

Sorry for assuming alexz1011 is a young person. When mentioned "just started work and Dad will help me"
and  In my defense: yes you are right any bank will jump at this LVR only thing that may be a hiccup is the work history. But I have found that the banks do put different conditions on younger applicants.

[If your Dad is willing to put up the money and for your to get the FHOG he will need to certify a letter signed by a solicitor or a statuary Declaration signed by a JP, to say that he has gifted the money to you and requires no repayments in return.]

Sorry this should read: [If your Dad is willing to put up the money and for your to get the FHOG then fine.]
[Alex will need to certify a letter signed by a solicitor or a statuary Declaration signed by a JP, to say that he has gifted the money to you and requires no repayments in return.] thank for pointing out the typo i will be more careful in future.
Yes you don't need the letter to apply for the FHOG but it is a save guard to prove where the money came from.
But if you are looking for finance you will most certainly need this letter just in case they ask where the money comes from.

Alex I do not know what the circumstances are to why you are wanting these particular properties at this particular price range, and  I will strongly recommend you not go into debt if you can help it, where you have to pay for it. If there is nothing set in concrete may I suggest rethink your strategies and options for a purchase price of $360K + $14K++ = $380K++ plus, your $40K can be used furnish the house and move you in. then look at taking out a loan when you own the property and use that as a deposit on a IP as Richard suggested. But I would use a basic mortgage rather than an LoC.

Now we have found out that Dad is going to fund only up to $360K and and your heart is set on this price range then you will need finance. Find finance for the full amount required $70-$130 and use the $40 to move in. Then anything left over put it back in to your mortgage.
Product recommendation, would be a basic mortgage with one of the 2nd tire lenders that has no fees, free redraw and allows you to makes extra payments at no cost. Even though these are P&I products they can almost be use like a LoC but at a much lower rate.
Ask the mortgage Broker you are going to use if they know of these products and if they stear you away, go some where else that will do the right thing by you.

Cheers
  

Hi Richard.
as far as tax is concerned here we are now talking not two different loans. but  we are talking about two completely different scenarios for Alex.

1. Alex goes into Bad debt and buys more expensive property!
Dad lends Alex $360K and Alex Borrows $70-130K purposed to purchase owner occupied property $440-$500
He gets $14k from FHOG and has $40K to pay for all moving in costs. What's left over goes into the redraw of the loan.
In this scenario there is no mentioned about tax as there is no rebates on owner occupied. Alex pays around $167 per week for the next 30years.

2. Alex Has no debt but has to do with not such an expensive house that may need some improvements and has a chance at setting up a good debt investment portfolio!
Dad lends Alex $360K and Alex applies for FHOG $14K purchases property $370K cash. Uses $40K for moving costs.
Once Alex has moved into the property and want to look at investing Alex then uses the property as security and set up a loan for the deposit..The loan no matter what the product can be used tax effectively as it's purpose is for future investment, ask your accountant how to structure it to make sure.
In this scenario Alex has a choice either stay debt free or go into good debt where someone else will help pay for it.

Which scenario would you recommend?

I am sorry if you misunderstood my posting I hope this has cleared this matter.

Cheers

Elka

Not at all i think you are aware of my virtues of an offset accounts however with such a small loan balance the cost of maintaining an account is unlikely to worth either the higher rate of interest or the monthly costs involved and given the approximate loan balance think a base rate loan would be preferable.

I would then look at bolting on a separate investment line of credit so that Alex can use this to fund deposits and acqusition costs for future IP's.

Of course one big disadvantage of a 2nd Base rate loan for the IP deposit and acquisition costs is that you are charged interest from the day the loan is drawn down and unless you have a property in mind the figure you want apply for will not be known.

Nothing to stop you taking the LOC (which is most cases will cost you nothing to set up done properly) and then you have a defined property in mind switching part of the loan to a separate base rate IP loan.

Bit messy but might save you 0.01% or so pre tax.

The offset account might be slightly expensive… but worth it in the long run especially if you are uncertain about the future… I admit I myself make a 'big' mistake.. because of stupid broker

Considering HSBC have pulled out of the residential lender market bar the shouting and sold their loan book to First Mac i think it a matter of grasping at straws for business at any costs.

Crunching the numbers and being aware of their old lending criteria i would have been suprised they would have qualified you for such a loan amount.